Industry News

Flexible office space flourishing across UK 23rd January 2018

Demand
for flexible workspace across the UK soared to record levels in 2017, according
to a C&W report that finds that leading operator WeWork has
been the largest taker of space in the capital over the past five years and
predicts that flexible space will account for 10% of the UK office market by
2027.

The Co-working 2018 report
reveals the extent to which the sector has evolved and matured.
The flexible workspace sector accounted for 17% of
all office leasing activity in the UK’s nine largest cities in 2017. This
compares to just 6% of leases in 2016.

Central London saw a record 2.5m sq ft of lettings
signed for flexible workspaces, more than 21% of all commercial office leases
in the capital. The average rent paid by flexible workspace providers across
the capital also rose to £65.50 per sq ft in 2017, a 10% increase on the
previous year.

The report states that around two thirds of the UK flexible
workspace market is outside London, and the UK’s largest cities saw significant
growth in the take-up of space for co-working, as the trend for flexible
workspaces spread well beyond the capital for the first time.
Take-up of flexible workplace in the UK’s largest
regional cities, including Birmingham, Bristol, Cardiff, Edinburgh, Glasgow,
Leeds, Manchester, and Newcastle, increased from 2% of all city centre lettings
in 2016 to 7.5% of take-up in 2017. This increase was largely driven by the
rapid expansion of WeWork and IWG's Spaces, which were responsible for more
than half of the year’s take-up of co-working space across the UK.

Elaine Rossall, Head of UK Offices Research &
Insight at C&W, said: “Flexible workspaces are now a
vitally important part of the UK economy, and an increasingly familiar presence
in our cities. The popularity of co-working has seen demand continue to grow
exponentially across the country, both for fast growing SMEs and increasingly
also for larger and more established companies.

“Co-working not only offers flexibility and room to
grow, but can also improve the employee experience, revitalise corporate
culture, and minimise companies’ exposure to long-term leases. One of the
additional key drivers of the market will be accounting changes that make
shorter-term leases of flexible space more attractive to larger businesses.”

London is the Global Capital of
Co-working
London has cemented its position as the global
leader for flexible workplaces, easily outstripping New York in terms of both
space and number of operations. Since 2012, flexible workplace leasing has
represented an average of 2.9% of the market in Manhattan, compared to 10.6% in
London.

Across Central London, flexible workplace providers
took more than a fifth of office space last year. A total of 2.5m sq ft was let
in 2017, tripling the previous year’s volumes.
This represented 21.1% of all Central London take
up, compared to 8.5% in 2016. The report said flexible workplace operators now
occupy around 10.7m sq ft of space across Central London, or just over 4% of
all office stock.
This has resulted in WeWork emerging as the largest
taker of space in the capital over the past five years, with 2,578,000 sq ft of
space since 2012. This places it ahead of Google (1,344,000 sq ft), Amazon
(1,013,000 sq ft), Deutsche Bank (858,000 sq ft) and fellow flexible office
provider The Office Group (853,000 sq ft).

C&W said: "In fact, such is its expansion
that WeWork now has the largest volume of office space commitments in London,
second only to the UK Government."
As the sector has expanded, so too has the average
workspace unit size in London to 40,000 sq ft, up from 15,000 sq ft in 2015.
There are now around 30 units in excess of 50,000 sq ft in London.

Growth Outlook
Over the next year the sector will see increasing
demand for co-working space from larger businesses, as corporate occupiers
embrace a more dynamic co-working culture or shorter and lower-risk leases.

Uncertainty around Brexit may be driving demand for flexible
workspace in London, as major corporates look to avoid long-term space
commitments.
Demand for flexible workspaces is likely to be
driven further by new lease accounting standards (IFRS 16) which require
occupiers to capitalise rental liabilities on their balance sheets. However, leases or licences under 12 months can be excluded,
increasing their appeal.

With demand for flexible workspace in Central
London almost doubling from 853,178 sq ft in 2016 to 2,484,000 sq ft in 2017,
there is significant pressure growing on the supply of space in the capital to
meet this demand.
"The pace of growth in the market will be
limited by operators such as WeWork reaching critical mass, while limited
supply of new space will act as an inhibitor to those seeking larger spaces,
" quotes the report. It predicts that in future,
every large multi-let building will have a proportion allocated to flexible
workspace as landowners look to take advantage of growing demand and meet the
needs of potential occupiers.

Elaine Rossall added: “One of the key issues will
be growing pressure on the supply of suitable co-working space and whether
landowners and developers can keep up with demand. Nevertheless, we expect
flexible workspaces will account for at least 10% of the total market across
the UK within the next 10 years.
“Providers will increasingly focus on 1-3 year
leases over short-term membership models, as these represent more sustainable
and lower-risk tenants for occupiers.
“While offices have been the traditional source of
space, pubs, hotels and libraries are increasingly of interest to flexible
space providers, building on the popularity of coffee shops and cafes as
flexible workspaces. Any brick-and-mortar business that is vacant for a period
during the day could be utilised for flexible working, and the availability of
vacant retail units could see co-working become a fixture of high streets
across the UK.”